Worried about the State Pension? I think these FTSE 250 stocks could help you retire

This FTSE 250 (INDEXFTSE:MCX) dividend stock could double in coming years, says Roland Head.

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Are you worried about how you’ll survive on the State Pension when you retire? You may be concerned you’ll have to keep working well into your 70s to earn extra income.

If you have at least 10 years left before you plan to stop work, I believe stock market investment is the best way to build extra savings to help support your retirement.

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Today, I want to look at two companies which I think have the potential to deliver significant wealth for shareholders over the coming years.

A buying opportunity?

Online gaming operator 888 Holdings (LSE: 888) runs a digital casino, plus poker, bingo and sports betting operations. The firm’s share price has halved over the last year, as investors have worried about regulatory risks and the outlook for growth.

I feel these concerns have probably been overdone. Although poker and bingo profits fell sharply last year, profits from casino and sports betting were higher. Overall, adjusted pre-tax profit for the whole group rose 11% to $86.7m, despite revenue falling 2% to $530m.

What this tells me is that this remains a highly profitable business. 888’s 2018 results show an operating profit margin of 18.4% and a return on capital employed of 62%. This shows it generated £620 of operating profit for every £1,000 of capital invested in its business. That’s very high indeed.

Investing in businesses with a high return on capital employed can be very profitable because they generate a lot of spare cash. This can be reinvested for further growth and returned to shareholders.

888 shares trade on 12.8 times 2019 forecast earnings, with a 6.4% dividend yield. In my experience, that’s unusually cheap for such a profitable business. I think the shares could easily double over the next few years and rate the stock as a buy.

A profitable game

Games Workshop (LSE: GAW) is well known for its chain of high street shops selling characters and resources for its Warhammer series of fantasy games.

I won’t pretend to understand the appeal of the games, but I can see the appeal of the firm’s financial performance in recent years. This business has clearly built a loyal and enthusiastic army of customers.

Annual sales have doubled to £220m since 2016. This breakneck pace of growth is expected to pause in 2019, as the company invests in new factory facilities and warehousing. However, the long-term picture seems positive, with analysts’ forecasting a return to growth in 2020.

This business generated a return on capital employed of 75% over the 12 months to December 2018, with an operating profit margin of 32.5%. These are very impressive figures. They give me confidence the company will be able to upgrade its operations and invest in growth while maintaining a net cash balance.

Games Workshop’s share price has pulled back from its all-time high of 4,052p, and now trades at about 3,000p. This prices the shares at about 17 times 2019 forecast earnings, with a 4.1% dividend yield. That looks good value to me for such a profitable and well-run business.

For long-term investors, I think the shares could be a decent buy at this level.

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Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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